ISAT’s 1Q24 revenue rose 16% YoY (1% QoQ) to Rp13.84 trillion. ARPU increased 14% YoY (-3% QoQ) to Rp37.5k, subscribers grew 2% YoY (2% QoQ) to 100.80 thousand. 2G and 4G BTS expanded by 11% and 21% QoQ, respectively, outside Java, driving operating expenses up 15.50% YoY to Rp11.10 trillion. Nonetheless, EBITDA grew 22.10% YoY to Rp6.5 trillion, with a 47% margin, resulting in a net profit of IDR1.3 trillion (39% YoY, -8% QoQ).

Management allocated ~Rp12 trillion for capex, focusing on expanding the network in eastern Indonesia. In 1Q24, ISAT added 32k new 4G BTS towers, totaling 184k. This efficient expansion enhances the 4G network, improving customer experience. Management targets an EBITDA margin of ~50%, with revenue growth expected to surpass industry averages.

ISAT entered a $200 million partnership with Nvidia, cementing its cloud service position in Indonesia. It also partnered with Netcracker for IT infrastructure upgrades and collaborated with Mastercard and Cisco on cybersecurity. IT Services revenue is expected to reach 5-7% of total revenue from FY24 to FY29.

We project ISAT to achieve revenue of IDR 54.63 trillion (+7% YoY) in FY24, mainly driven by a 6.70% CAGR (2024-2029) in the data segment and a 4% CAGR (2024-2029) in subscribers. Operating expenses are estimated to rise by 6% YoY to IDR 43.23 trillion due to expansion efforts, particularly outside Java. EBITDA is estimated at IDR 26.37 trillion with a margin of 48%. With these factors, we anticipate a net profit of IDR 5.19 trillion (+15.32% YoY) in FY24.

Using Discounted Free Cash Flow with a Required Return of 9.00% and a terminal growth rate of 3.00% suggests a potential increase of 23.40%, or IDR12,200 per share (implying PBV at 2.04X and PE at 14.54x for FY24F). Therefore, a BUY rating is assigned for ISAT. Risks include: 1) ARPU competition in the low-price segment, 2) potential market share disruption from the EXCL-FREN merger, and 3) potential disruption to the FMC business from the presence of Starlink.

By PHINTRACO SEKURITAS | Research
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